10 January 2010
Inventory Management: Cycle Counting to Improve Inventory Accuracy
If you’ve ever thought to make a sandwich and gone to the pantry for bread just to discover that you’re all out, then you know on a personal level how costly an inventory stock out can be. Not finding bread may mean that you forego lunch or may need to make an unplanned trip to the store. Whatever the outcome, chances are running out of bread was costly. In the same way, inventory stock outs at a distribution center are costly; a stock out wastes time and money and, potentially, could result in a lost sale.
Cycle counting programs are designed to eliminate or reduce unplanned stock outs. They increase inventory accuracy, improve resource efficiency, and eliminate the need for periodic physical inventory audits. Also, improved inventory accuracy allows for improving service levels while reducing safety stock levels, resulting in a reduction in overall inventory costs. Other benefits of cycle counting are
- Improvements in inventory control procedures and processes,
- More timely corrective actions for inventory discrepancies,
- Enhanced compliance reporting and auditing performance, and
- Increased customer service response times.
When determining cycle count frequency, there are several key factors that should be considered. You should begin by assessing what needs to be counted and how often. You should consider the minimum number of counts for each stock keeping unit (SKU) that would satisfy the accountants and auditors. Are there other governing bodies that require a minimum count frequency? Other factors that will determine count frequency are
- Inventory turnover rates: high turnover SKUs should be counted more frequently,
- SKU volume: high volume items require a higher count frequency, and
- High shrinkage items: SKUs that are likely to be stolen or misplaced should be counted more often.
When developing a cycle counting program, you should take the following steps into consideration:
- Training and documentation of procedures,
- Support system requirements,
- Change management program implementation, and
- Establishing an inventory control group to execute and monitor the cycle counting program.
The inventory control group should be run by an inventory control manager who oversees the inventory control staff and approves any required inventory adjustments. The inventory control staff is made up of individuals who perform cycle counts, zero count confirmations, slot verifications and SKU verifications. Cycle counts are scheduled counts that are completed on a routine basis. Zero count confirmations are performed ad hoc during normal day-to-day warehousing operations. And slot and SKU verifications occur whenever a discrepancy is uncovered and needs further investigation.
Counting activities should be performed during minimal activity periods in the areas where the count is being conducted. Counting during slow periods reduces the risk of counting errors and ensures greater count accuracy and reduced slot/SKU verifications.
Because inventory impacts every area of business operations, it’s important that inventory accuracy be maintained at a high level. Implementing a cycle counting program will enable you to establish inventory control procedures that ensure effective and efficient inventory management and control.
Posted by: Tamboura Gaskins at 10 January 2010 10:16 am | Category: Inventory Management | Tags: Business Management, carrying costs, inventory, stockout costs
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What do you mean by Slot Discrepancy ?
A slot discrepancy occurs when what you have in a location (slot) does not match what you think you should have in that location.